Al-Sadoon, who now lives in Denmark, says some of his clients exaggerated claims for money, produced fake paperwork and accused soldiers of wrongdoing even when they were not present.

He said: 'It was a racket, all of it. All these people cared about was money. It was like a claims factory and it didn't matter if the claims were true or false.'

He was employed by UK-based Iraqi middleman Mazin Younis, who was paid £1.6million in 2009 for passing clients on to the British law firm Leigh Day.

Basim Al-Sadoon (pictured), 37, said the racket he was involved in was aimed at winning payouts from the Ministry of Defence

Yesterday the firm admitted that about 20 claims from a total of 600 it had lodged in the High Court had come from Mr Al-Sadoon, either via Mr Younis or directly.

That figure included 17 claims that Mr Al-Sadoon, who ran an office in the Iraqi city of Basra, had later admitted were false, the company added.

It said all 600 claims were under review by both the firm and the MoD after the High Court ruled in December that the MoD had unlawfully detained and ill-treated four Iraqis. These claims could result in big payouts for other claimants.

A Leigh Day statement said: 'Should any of the remaining claims appear to be false or otherwise without merit as the review process continues, we would of course take the appropriate steps in accordance with our professional obligations with the court, the client and the Ministry of Defence.'

But last night the firm was under pressure to withdraw the claims immediately before any more taxpayers' cash was spent on them.

Ex-defence minister Andrew Murrison said: 'Fictitious or embroidered claims should be dropped before they cause any more misery to soldiers and their families and cost to the taxpayer.'

Ex-Sergeant Brian Wood, who was falsely accused by lawyers of mistreating Iraqis, said: 'If he has admitted lies they should 100 per cent be withdrawn.'

They exaggerated claims, produced bogus papers and falsely accused soldiers of wrongdoing

Sgt Wood took part in Battle of Danny Boy in May 2004 which was the subject of an inquiry based on false claims by Iraqis that were thrown out by a judge.

Tory MP Johnny Mercer added: 'If a case is built on an individual who has lied I don't know how they can take it forward. This guy is a self-confessed liar.' On Wednesday, Mr Al-Sadoon alleged that he helped find more than 300 clients and that many faked their allegations purely to make money.

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He told The Sun: 'It was all about money – people exaggerating'. He blamed the British legal system 'for making it so easy' and said many clients used forged documents from Iraqi officials to back their claims: 'There was no specific standards to accept cases. OK, you have a story and a little papers from any military camp.

'Also, you can get papers from Red Cross office in Basra fraudulently. You can collect some case elements.

'After that, you start your story. If you have an old spot on your body from old torture, you can use it, as well, as evidence.

'In Iraq it's easy to get doctors' papers. Doctors, for cash, can give you many reports. Claims were exaggerated to make money.'

Mr Al-Sadoon ran an office in Basra where he handled accusations made by locals against the British Army

Mr Al-Sadoon lodged his own fake claim following an alleged beating by soldiers he knew to be Danish.

Despite that, he says he and 17 other Iraqis made identical allegations against British soldiers in claims submitted through Leigh Day. This claim is still active but he will now withdraw it.

Mr Younis, who employed Al-Sadoon, said last night that most claims involved detention by British forces, were supported by evidence, and did not involve allegations of mistreatment. 'I never asked Mr Al-Sadoon to lie or to exaggerate claims,' he declared.

He said it was 'unimaginable to assume that a fraudulent evidence could have passed through Leigh Day and the MoD'.

An MoD spokesman said fake claims caused 'unnecessary distress' for soldiers and their families, adding: 'Credible claims should be and are investigated, but false allegations make it harder for justice to be served.'

Leigh Day denies any wrongdoing and a spokesman said: 'The claims in question have not proceeded past the early procedural stage and are now being reviewed with all other cases following the High Court judgment in December.

'Leigh Day vehemently denies any allegation that it knew any claims to be false or encouraged false claims at any time.'

Agent paid £40k to round up witnesses

Two years ago it was revealed how an Iraqi agent was paid nearly £40,000 a year by the Ministry of Defence to help the families of suspected insurgents killed by British soldiers.

Abu Jamal, 59, took statements from witnesses and ferried them to Lebanon to give video evidence to the Iraq Historical Allegations Team.

He was so busy he recruited his son Jamal Alshiraida, 28, and another colleague to help with all the paperwork.

A grieving widow claimed Jamal also knocked on her door to persuade her to claim compensation from the UK – one of 1,000 cases handed over to Public Interest Lawyers and Leigh Day over a decade.

When the Mail tracked down the firm in Basra, it was winning up to 20 clients a week, with Mr Alshiraida saying ‘I enjoy my job’.